ACC 541 Week 2 Individual Assignment Client Understanding Paper

Client Understanding ACC/541Client UnderstandingIt is important to understand accounting jargon to increase accountability by firms, and ensure that their books of accounts reflect their true financial positions. This paper deliberates some of the terms whose understanding is important for firms that own different kinds of assets, such as building their own properties, or investing in property that has goodwill. The terms includes the adjusting goodwill for impairment; recording gain or loss on asset disposal; capitalizing interest on building construction, and adjusting the lower cost of market inventory on valuation.Adjusting the Lower Cost of Market Inventory on ValuationUnderstanding the significance of adjusting the lower cost of market inventory on valuation is crucial. According to the principle of conservatism; accounting rules require that inventory be reported on the balance sheet at its lower market value rather than the inventorys cost (Godwin & Alderman, 2010). This is known as the lower cost of market (LCM) rule. This rule is applied at the end of each accounting period by making a comparison of inventory costs with market values. Thus, for purposes of comparing the two, an inventorys market value is equal to the cost of replacing the inventory. Firms also must understand how LCM is applied as they may need to compare costs and market values of their total inventories, some of their inventories, or individual inventory items. When